Business

Performance measurement: welcome to the revolution

Article Abstract:

Changes in the banking sector should compel senior executives in the implementation of new performance metrics that will guide them in decisionmaking and performance evaluation. Several new metrics have already been developed although they tend to be fully nonconventional, developed at the segment level by line managers, and managed by information officers. However, there are better alternatives other than these aforementioned tools. Senior managers are encouraged to go beyond generally accepted accounting principles (GAAP) to create cost-effective measurement systems. Recommendable tools are such emerging methodologies as economic value added (EVA) and the balanced scorecard (BSC). GAAP, EVA and BSC can be integrated to create the best performance metrics.

Strengthening risk management

Article Abstract:

Banks are strengthening their risk management systems in response to regulatory scrutiny and new businesses. According to a 1997 survey of 80 banking institutions, over 75% are centralizing or have centralized their risk management functions. Moreover, new metrics are being used, including earnings at risk, economic value of equity at risk and value at risk. However, the survey also points to certain weaknesses that bank managers should pay attention to. These include the lack of timely, standard data. Another weak point is the measurement of nonfinancial risk categories that are hard to quantify, including compliance, legal and reputation factors. Moreover, more training is needed to educate the organization on risk management.

UK bancassurance: will it play in Peoria?

Article Abstract:

The Citicorp/Travelers Group merger has announced plans to get into a combination of banking, insurance and investment business called bancassurance. Top British bancassurer Lloyds TSB shared the significant differences between the US and the UK in terms of legal environments and banking culture which are more advantageous to British banks. However, US banks must carefully evaluate opportunities in the financial services industry because major insurance acquisitions, alliances and other agreements can pose major threats to banking companies and their shareholders. The factors that contributed to the success of the European bancassurance model must also be assessed realistically.